Mexican peso up; central bank stands pat on rates

SAN FRANCISCO (MarketWatch) — The Mexican peso edged higher against the U.S. dollar Friday, gaining after the Bank of Mexico did as expected and left its key interest rate unchanged at 4.5%.

One U.S. dollar
USDMXN, +0.0919%
bought 12.051 pesos, down from 12.070 pesos Thursday.

The target rate for overnight interbank interest had been cut to 4.5% in July and has remained at that level ever since.

Mexico’s “economy has maintained its recovery over the last months of 2010,” monetary policy makers at the central bank said in a statement. “External demand recently seems to be picking up at a faster pace of growth.”

But they will continue to monitor the behavior of inflation expectations, particularly for prices of grains and other commodities, the statement said.

“The market may have been somewhat surprised by the lack of change in the central bank’s monetary policy stance,” said Eduardo Suarez, emerging-markets strategist at RBC Capital Markets, in a note to clients. “The consensus has been gravitating toward an earlier start of the rate hike cycle, which in the short-term could [put pressure on the Mexico peso]. However, we believe Banxico’s still hands-off approach remains supportive.”

Flavia Cattan-Naslausky, currency strategist at Royal Bank of Scotland, wrote in a research note that in spite of nominal gains, the Mexican peso “retains relative competitiveness” and that more severe policy imbalances seen in comparable emerging markets “provide further slack for the peso.”

Elsewhere in the region, Brazil’s Bovespa (BVSP) ended 0.6% lower at 69,133.09, losing 2.5% for the week. Argentina’s Merval (MERV) lost 0.5% to end at 3,648.26 for the session, up 3.1% for the week. Chile’s IPSA (IPSA) was 0.1% higher at 4,875.66, trading 1.1% lower than a week ago.

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